Pricing Network Services: The Case of the Internet

Abstract

Much research has recently been carried out on the analysis of those industries characterized by the supply of composite services from complementary components through network connections. One such case is the services provided by the Internet, which is usually described as a network of networks offering a mix of electronic services. A major current research topic relates to the efficient pricing of Internet services in the presence of network congestion. In this paper we follow the literature on pricing the Internet and extend the analysis towards introducing, in a second best context, an explicit concern with equity. The paper is structured as follows. In section 1 we provide an overview of the characteristics of the Internet as a network, emphasizing its main technological and cost features, and outline the problem of congestion. Section 2 details the main issues behind the pricing question. In section 3 we discuss why efficient prices have to be balanced against distributional concerns. Section 4 presents the final comments.

JEL Classification: D39, D49, H23